Chapter 2 Terms & Notes
• Service Business-A
business that performs
an activity for a fee.
• Proprietorship-A
business owned by
one person.
• Asset-Anything
owned.
• Equities-Financial
rights to the assets of a
• Liabilities-A amount
owed by a business.
• Owner’s Equity-The
amount remaining
after the value of all
liabilities is subtracted
from the value of all
assets.
• Accounting EquationAn equation showing
the relationship among
Terms 2 & Notes
• Transaction-A business activity that changes
assets, liabilities, or owner’s equity.
• Account-A record summarizing all
information pertaining to a single item in
the accounting equation.
• Account Title-The name given to an
account.
• Account Balance-The amount in an
account.
Terms 2 and Notes
• Capital-The account used to summarize the
owner’s equity in the business.
• Balance Sheet-A financial statement that
reports assets, liabilities, and owner’s equity
on a specific date.
• A business has two types of equities--liability & Owner’s Equity.
Notes 2
• Accounting Equation--Assets=Liabilities+Owner’s Equity(capital)
• Summary of how Transactions Change the
accounting equation:
– 1.Each transaction changes at least two
accounts in the accounting equation.
– 2. When all the changes occur on one side of
the accounting equation, increases on that side
must be matched by decreases on the same side.
Notes 2
– 3.When a transaction increases one side of the
accounting equation, the other side of the
equations must also be increased by the same
amount.
– 4.When a transaction decreases one sided of the
accounting equations, the other side of the
equations must also be decreased by the same
amount.
Steps in Preparing a Balance
Sheet
• 1.Heading-Name of
Business, Type of
Statement, Date or
Fiscal Period
• 2.Prepare Assets
Section.
• 3.Prepare Liabilities
Section
• 4.Prepare Owner’s
Equity Section.
• 5.Determine if
Balance Sheet is in
Balance before any
further
work(A=L+OE).
• 6.Complete and
Double Rule Balance
Sheet
Notes 2
• Spell out words in full is space allows
otherwise abbreviate.
• Double ruled lines mean totals are verified
and correct.
• Single ruled lines mean items need to be
added or subtracted.
Notes 2
• Account Numbers
–
–
–
–
–
100=Assets
200=Liabilities
300=Owner’s Equity
400=Revenue
500=Expense